Land parceling or land plots

[GoRentFreeFast]

Has anyone heard of this strategy...new to me. I’m doing diligence but was curious if anyone has partaken in this??
Developer buys land (UK based)...spends time and money getting the land spec’ed and doing all the preplanning for development. As we all know this can take 12-36 months before planning permission is granted soooo...these guys take a 200 acre plot of land and split it up into 6800 registered and titled ‘plots’ which you can by for $8,000 initial purchase price with the contractual guarantee that they will buy it back for $10,000 at the end of 12 month.

If you choose to hold for a second term they will pay you $12,500 at the end of that second term. The premise here is that the land is dramatically more valuable as it approaches planning permission granted stages. They do provide certified land evaluations indication the land ‘plots’ or ‘parcels’ will be worth $20k once the approvals are granted.

I know, I know...Hmmm...however thus far they check out and one of my developer partners said she’s head of this in Alberta and BC.

Anyone with legal or other input here??

Philip

 

[larysa002]

QUOTE (GoRentFreeFast @ Oct 23 2009, 05:00 PM) Has anyone heard of this strategy...new to me. I`m doing diligence but was curious if anyone has partaken in this??
Developer buys land (UK based)...spends time and money getting the land spec`ed and doing all the preplanning for development. As we all know this can take 12-36 months before planning permission is granted soooo...these guys take a 200 acre plot of land and split it up into 6800 registered and titled `plots` which you can by for $8,000 initial purchase price with the contractual guarantee that they will buy it back for $10,000 at the end of 12 month.

If you choose to hold for a second term they will pay you $12,500 at the end of that second term. The premise here is that the land is dramatically more valuable as it approaches planning permission granted stages. They do provide certified land evaluations indication the land `plots` or `parcels` will be worth $20k once the approvals are granted.

I know, I know...Hmmm...however thus far they check out and one of my developer partners said she`s head of this in Alberta and BC.

Anyone with legal or other input here??

Philip


The instructor of my commercial RE class called it land banking, and recommended it. He invested in waterfront land in Ontario and beyond. Very smart man, I am just not sure if I can find his contact as we are packed for moving.

 

[Thomas Beyer]

While land banking makes sense in principle, all land development projects have to be considered EXTREMELY RISKY due to these facts:

a) demand worldwide is weaker due to oversupply of houses and condos in many markets due to too cheap money from 2002 to 2007 and tighter consumer purses/unemployment
b) financing is far more difficult to get and far more costly for development, thus creating more risk
c) timelines are unclear .. and could stretch a decade or two !!!
d) many (way too many !!) shady operators using legal loopholes to do whatever they want .. in the UK, here in AB, BC, ON ..
e) there is no cash-flow, thus funds well in excess of the land cost have to be raised
f) frequently the land value is uplifted by 200% or more before it is even syndicated to "retail investors"
g) often the land is not owned by investor but money is loaned to a 3rd company making legal recourse almost impossible
h) land prices have dropped SIGNIFICANTLY (around 50% !!) in many markets so there is a good chance you buy land today in 2009 at prices of the peak in 2007/2008

It is purely speculative and should be done only with money whose ENTIRE LOSS will not materially affect you.

Having said that 25% ROI / year is doable if
a) the operator is honest, AND
b) the land is not inflated going in, AND
c) the land price is current market value and not peak value, AND
d) if the demand is there, AND
e) if the city approves sub-division in a timely fashion, AND
f) it is not mortgaged, AND
g) it can be sold off quickly, AND
h) operators operating expenses, fees and equity % is reasonable

Lots of ANDs .. but certainly attainable IF ALL THESE conditions are met !!

Are they ?

This may or may not be the case with this UK operator which I don`t know.

If you need excitement, go to Vegas, go snorkeling with sharks or go sky diving ! Don`t do "exciting" stuff with your money !!

 

[GoRentFreeFast]

QUOTE (thomasbeyer2000 @ Oct 23 2009, 08:49 PM) While land banking makes sense in principle, all land development projects have to be considered EXTREMELY RISKY due to these facts:

a) demand worldwide is weaker due to oversupply of houses and condos in many markets due to too cheap money from 2002 to 2007
b) financing is far more difficult to get and far more costly for development, thus creating more risk
c) timeslines are unclear .. and could stretch a decade or two !!!
d) many (way too many !!) shady operators using legal loopholes to do whatever they want .. in the UK, here in AB, BC, ON ..
e) there is no cash-flow, thus funds after in excess of the land cost have to be raised
f) frequently the land value is uplifted by 200% or more before it is even syndicated to "retail investors"
g) often the land is not owned by investor but money is loaned to a 3rd company making legal recourse almost impossible
h) land prices have dropped SIGNIFICANTLY (around 50% !!) in many markets so there is a good chance you buy land today in 2009 at prices of the peak in 2007/2008

It is purely speculative and should be done only with money whose ENTIRE LOSS will not materially affect you.

Having said that 25% ROI / year is doable if
a) the operator is honest, AND
b) the land is not inflated going in, AND
c) the land price is current market value and not peak value, AND
d) if the demand is there, AND
e) if the city approves sub-division in a timely fashion, AND
f) it is not mortgaged, AND
g) it can be sold off quickly, AND
h) operators operating expenses, fees and equity % is reasonable

Lots of ANDs .. but certainly attainable IF ALL THESE conditions are met !!

Are they ?

This may or may not be the case with this UK operator which I don`t know.

If you need excitement, go to Vegas, go snorkeling with sharks or go sky diving ! Don`t do "exciting" stuff with your money !!


Thanks for the feedback Thomas…not sure if you’re familiar with this concept or simply stating good suggestions; regardless all good points. Couple of good key questions which you raised which I will get answers for and report back for everyone.



By the way, I’m glad you stated a version the investors rule of survival again for everyone…”Only invest money you can afford to loose…”



As a matter of personal note…I did actually go snorkeling with sharks this year (even if they where harmless 10 foot long nurses sharks…!)



Philip

 

[GoRentFreeFast]

QUOTE (larysa002 @ Oct 23 2009, 08:39 PM) The instructor of my commercial RE class called it land banking, and recommended it. He invested in waterfront land in Ontario and beyond. Very smart man, I am just not sure if I can find his contact as we are packed for moving.


If you happened to find or remember the persons name I would sincerely appreciate the contact info…



Regards



Philip

 

[larysa002]

QUOTE (GoRentFreeFast @ Oct 23 2009, 06:53 PM) If you happened to find or remember the persons name I would sincerely appreciate the contact info…

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Regards



Philip

Sorry, no luck for now finding it. He was CCIM recognized.